Computer problem may hit tax codes

A computer problem at the Inland Revenue could mean millions are issued with incorrect tax codes, reports Alison Steed

MILLIONS of people could be issued with the wrong tax code as the result of an Inland Revenue computer glitch.

Mike Warburton: 'The Revenue doesn't want to go through the cost of reloading that data.'

Problems transferring data from one computer system to another have meant that over five million tax records for the 1998-99 tax year are now missing vital pay and tax information. Accountants warned this week that this could have a knock-on effect on the correct calculation of this year's Pay As You Earn (PAYE) codes.

The information is missing because of problems moving information from the Revenue's National Insurance Recording System 2, run by Andersen Consulting, to its Computerised Operation of PAYE (COP) system. The COP system is run by computer company Electronic Data Systems and is one of the Revenue's oldest but most important mainframes.

In an internal memo dated June 16, which was leaked to Computer Weekly magazine, the Revenue states that there are "a significant number of cases where incorrect 98/99 pay and tax details have been posted to COP records, resulting in cases failing the tax table test and being left open with potentially serious consequences for incorrectly repaying or coding out overpayments or underpayments".

The Revenue is currently undertaking a review, which should be completed in about a month, to discover why the transfer of information was unsuccessful. A spokesman said: "We are looking into the reasons why this has not gone across, and we are looking at all the issues about why information is missing."

Mike Warburton, senior tax partner at tax specialist Grant Thornton, said it is possible to re-create the records because the data will still be held on each system. But he said: "The Revenue doesn't want to go through the cost of reloading that data."

Although the Inland Revenue is adamant that the missing information will not impact on PAYE notices of coding, tax experts disagree.

Maurice Fitzpatrick, tax partner at London accountancy firm Chantrey Vellacott DFK, said: "I'm sure they wouldn't want to publicly admit that there are incorrect notices of coding out there. The notice of coding can only be as good as the information currently processed by the Revenue. If there are problems with the 98/99 tax records, then that can impact on the current year."

Moira Elms, personal finance partner at PriceWaterhouse Coopers, is most concerned about low earners who may have been overtaxed. She said: "It might not end up being an enormous issue, because these are the people with the most straightforward codes, but the codes are not necessarily going to be up to date. This could potentially mean not repaying the people who can't afford to not have their money back."

The Inland Revenue is also having problems processing self-assessment returns electronically. It admitted this week that no one has yet qualified for the £10 reduction in their tax bill for filing their self-assessment and paying their bill. So far, 3,000 people have filed their tax returns electronically since the system was first introduced on July 3, but it is taking the Revenue around 28 days to process the forms.

A Revenue spokesman said: "As yet no one has yet qualified for a £10 bonus, though we would not, in any case, be paying that until January 31." This is the last date by which tax returns for the year ending April 5 2000, must be filed with the Inland Revenue.

Many people who have tried to download the Revenue's self-assessment software have found it takes one to two hours to do so. As a result, the Revenue is offering taxpayers CD Roms to allow them to fill in their tax details online.

Ruth Doyle, a spokeswoman for chartered accountants Blick Rothenberg, said: "The Inland Revenue has had continual problems with its computer systems for the past three or four months. Some of our clients have been sent notices saying they owe money when they do not."

The Association of Chartered Certified Accountants would like to see the Revenue compensate taxpayers who have lost out because of systems failures. Chas Roy-Chowdhury, head of taxation at the ACCA, said: "We wonder when the Inland Revenue will stop making excuses and get its systems working properly.

"The most galling thing is that it will never allow taxpayers any slack where they have problems in getting their returns in on time or being able to pay the full amounts of tax when due."